Chapter 9 Project Cash Flow Analysis

Transcription

1 Chapter 9 Project Cash Flow Analysis 9.1: (c) Given: accounting and cash flow data Find: income tax rate to use in project year 1 Approach: find the taxable incomes and income taxes with and without project Revenue $1, Expenses 4, 6, $ 54, Before Project After Project Due to Project Income taxes $32, 18,5 $374, 127,16 $54, 19,11 Tax rate 33.77% 34% 35.39% 9.2: (a) Given: accounting and financial data Find: project cash flow at the end of year 1 Approach: use a tabular approach. Note that there will be no depreciation in year 1, as the asset will be fully depreciated in year 8. Income Statement Revenue O&M cost Income taxes (4%) Cash flow from operation: Cash flow from investing: Investment Salvage value Gains taxes Net cash flow Year 1 $15, $5, $1, $4, $6, $6, $15, (6,) $69,

2 9.3: (d) Given: accounting and financial data, with debt financing Find: project cash flow at the end of year 1 Approach: use a tabular approach. Note that there will be no depreciation in year 1, as the asset will be fully depreciated in year 8. There will be entries related to financing activities. Income Statement Revenue O&M cost Debt interest Income taxes (4%) Cash flow from operation: Cash flow from investing: Investment Salvage value Gains taxes Cash flow from financing: Principal repayment Net cash flow Year 1 $15, $5, 1, $98,52 $39,48 $59,112 $59,112 $15, (6,) ($14.795) $53, : (a) Given: I = $15,, S = 2,, O&M = $52,5 per year, N = 7 years, MARR = 12%, tax rate = 4% Find: net present worth Approach: Create a cash flow statement using Excel

3 Income Statement Revenues (savings) $52,5 $52,5 $52,5 $52,5 $52,5 $52,5 $52,5 $21,435 $36,735 $26,235 $18,735 $13,395 $13,3 $6,9 Taxable Income $31,65 $15,765 $26,265 $33,765 $39,15 $39, $45,6 Income Taxes(4% ) $12,426 $6,6 $1,56 $13,56 $15,642 $15,6 $18,24 Net Income $18,639 $9,459 $15,759 $2,259 $23,463 $23,472 $27,36 Operating Activities: Net Income $18,639 $9,459 $15,759 $2,259 $23,463 $23,472 $27,36 $21,435 $36,735 $26,235 $18,735 $13,395 $13,3 $6,9 Investment Activities: Investment ($15,) Salvage $2, Gains Tax $2,726 Net Cash Flow ($15,) $4,74 $46,194 $41,994 $38,994 $36,858 $36,852 $56,986 NPW(12% ) $42,64 9.5: (b) Given: I = $,, S =, O&M = $2, per year, N = 4 years, MARR = 14% Find: required annual savings (X) Approach: Set up a present worth equation as a function of X. PW (14%) = $, + ( X 2,)( P / A,14%, 4) = $, X $58, 274 = X = $178, 274 X = $61, : (c) Given: financial data, MARR = 15%, t m = 4% Find: net present value of the project Approach: Obtain the after tax cash flow series using the income statement approach

4 Income Statement Revenue O&M Income taxes (4%) Cash flow from operation: Cash flow from investing: Investment Salvage value Gains taxes ($15) 25 (1) Net cash flow -$15 $12 $12 $12 $12 $117 PW (15%) = $15 + $12( P / A,15%,5) + $15( P / F,15%,5) = $ _ 9.7: (a) Given: statements under inflationary environment Find: the incorrect statement The correct answer is (a). Under the inflationary economy, lenders will normally charge a higher interest rate to protect them from loss in purchasing power. 9.8: (c) Given: I = $2,, S = $5,, O&M = $4, per year, annual revenue = $15,, N = 6 years, MARR = 12%, and tax rate = 4% Find: Rate of return Approach: Create a cash flow statement using Excel

5 Income Statement Creating a for Machine A Input Output Tax Rate(%) 4 PW(i) $14,56 MARR(%) 12 IRR(%) 35% Project Life(yrs) 6 Borrowed Interest(%) Revenue $15, $15, $15, $15, $15, $15, Labor 4, 4, 4, 4, 4, 4, Material $ - $ - $ - $ - $ - $ - Overhead $ - $ - $ - $ - $ - $ - -Personal Property 4, 6,4 3,84 2,4 2,4 1,152 -Real Property $ - $ - $ - $ - $ - $ - Debt Interest $ - $ - $ - $ - $ - $ - Taxable Income $7, $4,6 $7,16 $8,696 $8,696 $9,8 Income Taxes 2, 1,84 2,864 3,478 3,478 3,939 Net Income $4,2 $2,76 $4,296 $5,218 $5,218 $5,99 Operating Activities: Net Income 4,2 2,76 4,296 5,218 5,218 5,99 4, 6,4 3,84 2,4 2,4 1,152 Investment Activities: Personal Property (2,) 5, Real Property $ - $ - Gains Tax (2,) Working Capital $ - $ - Financing Activities: Borrowed Funds $ - Principal Repayment $ - $ - $ - $ - $ - $ - Net Cash Flow ($2,) $8,2 $9,16 $8,136 $7,522 $7,522 $1,61 9.9: (c) Given: I = $12,, S = 3,, O&M = $2,5 per year, annual revenue = $12,5, N = 6 years, MARR = 12%, tax rate = 4% Find: net present worth Approach: Create a cash flow statement using Excel. Assume that an identical asset like machine B will be available at the end of 3 years for replacement.

6 Income Statement Creating a for Machine B Input Output Tax Rate(%) 4 PW(i) $11,124 MARR(%) 12 IRR(%) 4% Project Life(yrs) 6 Borrowed Interest(%) Revenue $12,5 $12,5 $12,5 $12,5 $12,5 $12,5 Labor 2,5 2,5 2,5 2,5 2,5 2,5 Material $ - $ - $ - $ - $ - $ - Overhead $ - $ - $ - $ - $ - $ - -Personal Property 2,4 3,84 1,152 2,4 3,84 1,152 -Real Property $ - $ - $ - $ - $ - $ - Debt Interest $ - $ - $ - $ - $ - $ - Taxable Income $7,6 $6,16 $8,8 $7,6 $6,16 $8,8 Income Taxes 3,4 2,464 3,539 3,4 2,464 3,539 Net Income $4,56 $3,696 $5,9 $4,56 $3,696 $5,9 Operating Activities: Net Income 4,56 3,696 5,9 4,56 3,696 5,9 2,4 3,84 1,152 2,4 3,84 1,152 Investment Activities: Personal Property (12,) -9 3, Real Property $ - $ - Gains Tax -643 (643) Working Capital $ - $ - Financing Activities: Borrowed Funds $ - Principal Repayment $ - $ - $ - $ - $ - $ - Net Cash Flow ($12,) $6,96 $7,536 ($3,182) $6,96 $7,536 $8, : (a) 28 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This publication is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department, Pearson Education, Inc., Upper Saddle River, NJ 7458.